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Individual risk attitudes arise from noise in neurocognitive magnitude representations


Barretto-García, Miguel; de Hollander, Gilles; Grueschow, Marcus; Polania, Rafael; Woodford, Michael; Ruff, Christian C (2023). Individual risk attitudes arise from noise in neurocognitive magnitude representations. Nature Human Behaviour, 7(9):1551-1567.

Abstract

Humans are generally risk averse, preferring smaller certain over larger uncertain outcomes. Economic theories usually explain this by assuming concave utility functions. Here, we provide evidence that risk aversion can also arise from relative underestimation of larger monetary payoffs, a perceptual bias rooted in the noisy logarithmic coding of numerical magnitudes. We confirmed this with psychophysics and functional magnetic resonance imaging, by measuring behavioural and neural acuity of magnitude representations during a magnitude perception task and relating these measures to risk attitudes during separate risky financial decisions. Computational modelling indicated that participants use similar mental magnitude representations in both tasks, with correlated precision across perceptual and risky choices. Participants with more precise magnitude representations in parietal cortex showed less variable behaviour and less risk aversion. Our results highlight that at least some individual characteristics of economic behaviour can reflect capacity limitations in perceptual processing rather than processes that assign subjective values to monetary outcomes.

Abstract

Humans are generally risk averse, preferring smaller certain over larger uncertain outcomes. Economic theories usually explain this by assuming concave utility functions. Here, we provide evidence that risk aversion can also arise from relative underestimation of larger monetary payoffs, a perceptual bias rooted in the noisy logarithmic coding of numerical magnitudes. We confirmed this with psychophysics and functional magnetic resonance imaging, by measuring behavioural and neural acuity of magnitude representations during a magnitude perception task and relating these measures to risk attitudes during separate risky financial decisions. Computational modelling indicated that participants use similar mental magnitude representations in both tasks, with correlated precision across perceptual and risky choices. Participants with more precise magnitude representations in parietal cortex showed less variable behaviour and less risk aversion. Our results highlight that at least some individual characteristics of economic behaviour can reflect capacity limitations in perceptual processing rather than processes that assign subjective values to monetary outcomes.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Special Collections > Centers of Competence > Healthy Longevity Center
08 Research Priority Programs > Adaptive Brain Circuits in Development and Learning (AdaBD)
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Social Psychology
Social Sciences & Humanities > Experimental and Cognitive Psychology
Life Sciences > Behavioral Neuroscience
Uncontrolled Keywords:Behavioral neuroscience, experimental and cognitive psychology, social psychology
Scope:Discipline-based scholarship (basic research)
Language:English
Date:September 2023
Deposited On:01 Dec 2023 15:12
Last Modified:30 May 2024 01:49
Publisher:Nature Publishing Group
ISSN:2397-3374
OA Status:Green
Publisher DOI:https://doi.org/10.1038/s41562-023-01643-4
Other Identification Number:merlin-id:24178
Project Information:
  • : FunderMarlene Porsche Graduate School in Neuroeconomics
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  • : FunderDutch Research Council NWO
  • : Grant ID
  • : Project Title
  • : FunderUniversity Research Priority Program 'Adaptive Brain Circuits in Development and Learning'
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